Medical Office Buildings

Editor’s Note: This is a 2026 update from a series post­ed in 2022.

Introduction

Med­ical Office Build­ings (MOBs) have emerged as one of the most attrac­tive sec­tors with­in com­mer­cial real estate. Sup­port­ed by pow­er­ful demo­graph­ic trends, tech­no­log­i­cal advance­ments in health­care deliv­ery, and increas­ing demand for out­pa­tient ser­vices, Med­ical Office Build­ings con­tin­ue attract­ing insti­tu­tion­al investors, REITs, pri­vate equi­ty firms, and Delaware Statu­to­ry Trust (DST) spon­sors.

“Health­care is one of the few sec­tors where demand is large­ly dri­ven by demo­graph­ics rather than eco­nom­ic cycles,” says Al DiNi­co­la. “Peo­ple may post­pone pur­chas­ing a new car or tak­ing a vaca­tion, but health­care needs gen­er­al­ly can­not be delayed indef­i­nite­ly.”

For investors seek­ing diver­si­fi­ca­tion and pas­sive income oppor­tu­ni­ties through DSTs, Med­ical Office Build­ings may offer expo­sure to a sec­tor sup­port­ed by long-term struc­tur­al demand.

What Is a Medical Office Building?

Med­ical Office Build­ings dif­fer sig­nif­i­cant­ly from tra­di­tion­al office prop­er­ties.

A tra­di­tion­al office build­ing may house:

• Law firms
• Account­ing firms
• Mar­ket­ing agen­cies
• Finan­cial advi­sors

Med­ical Office Build­ings are specif­i­cal­ly designed for health­care deliv­ery and may include:

• Pri­ma­ry care prac­tices
• Ortho­pe­dic clin­ics
• Imag­ing cen­ters
• Ambu­la­to­ry surgery cen­ters
• Dial­y­sis cen­ters
• Phys­i­cal ther­a­py facil­i­ties
• Car­di­ol­o­gy prac­tices
• Oncol­o­gy cen­ters
• Spe­cial­ty physi­cian groups

Many MOBs are locat­ed near hos­pi­tals, while oth­ers oper­ate as stand­alone out­pa­tient facil­i­ties through­out grow­ing com­mu­ni­ties.

“The mod­ern health­care deliv­ery mod­el increas­ing­ly empha­sizes con­ve­nience and acces­si­bil­i­ty,” explains DiNi­co­la. “Patients want qual­i­ty care clos­er to where they live and work.”

Why Medical Office Buildings Continue to Grow

Sev­er­al long-term trends con­tin­ue dri­ving demand for health­care real estate.

Aging Population

America’s aging pop­u­la­tion remains one of the strongest demand dri­vers. More than 11,000 Amer­i­cans turn 65 every day.

As pop­u­la­tions age, demand typ­i­cal­ly increas­es for:

• Physi­cian vis­its
• Diag­nos­tic ser­vices
• Sur­gi­cal pro­ce­dures
• Reha­bil­i­ta­tion ser­vices
• Spe­cial­ty med­ical care

“The demo­graph­ic wave sup­port­ing health­care real estate is not a short-term trend,” notes DiNi­co­la. “It is like­ly to remain in place for decades.”

Population Growth in the Sun Belt

Many health­care sys­tems con­tin­ue expand­ing through­out:

• Flori­da
• Texas
• Ari­zona
• Ten­nessee
• North Car­oli­na
• South Car­oli­na
• Geor­gia

These states con­tin­ue attract­ing retirees, fam­i­lies, and busi­ness­es.

Pop­u­la­tion growth nat­u­ral­ly cre­ates increased demand for health­care infra­struc­ture.

Expanded Healthcare Access

Health­care providers con­tin­ue mov­ing ser­vices clos­er to patients through satel­lite offices and out­pa­tient facil­i­ties. This trend has increased demand for neigh­bor­hood-based med­ical office prop­er­ties.

The Shift to Outpatient Care

One of the biggest devel­op­ments in health­care real estate over the past decade has been the migra­tion of ser­vices from hos­pi­tals to out­pa­tient facil­i­ties. Advances in tech­nol­o­gy now allow many pro­ce­dures to be per­formed out­side tra­di­tion­al hos­pi­tal set­tings.

Exam­ples include:

• Ortho­pe­dic pro­ce­dures
• Imag­ing ser­vices
• Cataract surgery
• Endoscopy pro­ce­dures
• Pain man­age­ment treat­ments

“Many ser­vices that once required hos­pi­tal admis­sion can now be per­formed safe­ly in out­pa­tient set­tings,” says DiNi­co­la.

Ben­e­fits include:

• Low­er health­care costs
• Greater con­ve­nience
• Faster patient recov­ery
• Reduced hos­pi­tal con­ges­tion

As a result, out­pa­tient facil­i­ties con­tin­ue expand­ing nation­wide.

Why MOBs Are Different from Traditional Office Buildings

The office sec­tor has under­gone sig­nif­i­cant changes due to hybrid and remote work arrange­ments. Med­ical Office Build­ings have large­ly avoid­ed these chal­lenges.

“A physi­cian can­not per­form a knee replace­ment, con­duct an MRI, or pro­vide phys­i­cal ther­a­py through a Zoom meet­ing,” says DiNi­co­la. While tele­health remains an impor­tant com­ple­ment to health­care deliv­ery, it does not elim­i­nate the need for phys­i­cal med­ical facil­i­ties.

Many med­ical ser­vices require:

• In-per­son exam­i­na­tions
• Diag­nos­tic equip­ment
• Lab­o­ra­to­ry test­ing
• Sur­gi­cal pro­ce­dures
• Reha­bil­i­ta­tion ser­vices

This phys­i­cal depen­den­cy helps sup­port occu­pan­cy demand for med­ical prop­er­ties.

Tenant Retention and Stability

Med­ical ten­ants often remain in place for extend­ed peri­ods.

Sev­er­al fac­tors con­tribute to ten­ant reten­tion:

Significant Tenant Improvements

Med­ical spaces typ­i­cal­ly require exten­sive build­outs, includ­ing:

• Spe­cial­ized plumb­ing
• Imag­ing equip­ment
• Sur­gi­cal suites
• Med­ical gas sys­tems
• Enhanced elec­tri­cal infra­struc­ture
• ADA com­pli­ance mod­i­fi­ca­tions

The cost of relo­cat­ing can be sub­stan­tial.

“When a ten­ant has invest­ed mil­lions of dol­lars into spe­cial­ized improve­ments, relo­ca­tion becomes much less attrac­tive,” explains DiNi­co­la.

Patient Convenience

Health­care providers seek con­ti­nu­ity for patients. Mov­ing offices may dis­rupt patient rela­tion­ships and refer­ral net­works.

Strategic Locations

Many MOBs are inte­grat­ed with­in larg­er health­care sys­tems, mak­ing relo­ca­tion less prac­ti­cal.

Technology Is Transforming Healthcare Real Estate

Med­ical facil­i­ties con­tin­ue adopt­ing advanced tech­nolo­gies.

Exam­ples include:

• Tele­health inte­gra­tion
• Elec­tron­ic med­ical records
• Arti­fi­cial intel­li­gence diag­nos­tics
• Robot­ic surgery sup­port sys­tems
• Advanced imag­ing tech­nol­o­gy
• Remote patient mon­i­tor­ing

While these tech­nolo­gies improve care deliv­ery, they gen­er­al­ly increase rather than decrease the need for mod­ern med­ical facil­i­ties.

“Tech­nol­o­gy is chang­ing how health­care is deliv­ered, but it is not elim­i­nat­ing the need for health­care real estate,” says DiNi­co­la.

MOB Tenant Quality

Ten­ant qual­i­ty remains a crit­i­cal com­po­nent of invest­ment analy­sis.

Poten­tial ten­ants may include:

• Hos­pi­tal sys­tems
• Physi­cian groups
• Health­care net­works
• Dial­y­sis providers
• Ambu­la­to­ry surgery oper­a­tors
• Nation­al health­care orga­ni­za­tions

Investors often eval­u­ate:

• Finan­cial strength
• Mar­ket posi­tion
• Lease terms
• Renew­al options
• Rent esca­la­tions

The Pri­vate Place­ment Mem­o­ran­dum (PPM) pro­vides details regard­ing ten­ant cred­it­wor­thi­ness and lease struc­ture.

Triple-Net Lease Structures

Many MOB DST offer­ings uti­lize Triple-Net (NNN) lease struc­tures.

Under these arrange­ments, ten­ants may be respon­si­ble for:

• Prop­er­ty tax­es
• Insur­ance
• Main­te­nance expens­es

“Triple-net struc­tures can help cre­ate pre­dictable cash flow while reduc­ing cer­tain oper­at­ing expense risks,” notes DiNi­co­la. Lease struc­tures vary among offer­ings, and investors should care­ful­ly review all lease pro­vi­sions and respon­si­bil­i­ties.

Why DST Sponsors Like Medical Office Buildings

Med­ical Office Build­ings offer sev­er­al char­ac­ter­is­tics attrac­tive to DST spon­sors:

• Long-term leas­es
• Strong occu­pan­cy his­to­ries
• Demo­graph­ic demand dri­vers
• Spe­cial­ized ten­ant improve­ments
• Reces­sion-resis­tant char­ac­ter­is­tics
• Sta­ble ten­ant bases

The chal­lenge often lies in acquir­ing assets.

“There is sig­nif­i­cant com­pe­ti­tion for qual­i­ty health­care real estate,” says DiNi­co­la. “Insti­tu­tion­al investors, health­care REITs, and pri­vate equi­ty firms are all com­pet­ing for many of the same prop­er­ties.”

As a result, MOB DST offer­ings are often ful­ly sub­scribed quick­ly when brought to mar­ket.

Risks Investors Should Understand

Like all real estate invest­ments, MOBs car­ry risks.

Investors should eval­u­ate:

Tenant Concentration

Some prop­er­ties may rely heav­i­ly on one health­care provider.

Reimbursement Changes

Changes in health­care reim­burse­ment sys­tems can impact providers.

Regulatory Environment

Health­care remains a high­ly reg­u­lat­ed indus­try.

Local Market Competition

New facil­i­ties and com­pet­ing providers can affect occu­pan­cy and rental growth.

Sponsor Quality

Spon­sor and oper­a­tor expe­ri­ence remain impor­tant con­sid­er­a­tions.

Exit Strategies and 1031 Planning

As with oth­er DST invest­ments, investors gen­er­al­ly have sev­er­al options when a prop­er­ty is sold:

• Receive sale pro­ceeds and rec­og­nize tax­able gains
• Com­plete anoth­er 1031 exchange
• Exchange into tra­di­tion­al real estate
• Poten­tial­ly par­tic­i­pate in a 721 UPREIT trans­ac­tion if offered by the spon­sor

The appro­pri­ate strat­e­gy depends upon each investor’s objec­tives and tax cir­cum­stances.

Conclusion

Med­ical Office Build­ings have become one of the most insti­tu­tion­al­ly favored sec­tors of health­care real estate. Sup­port­ed by aging demo­graph­ics, pop­u­la­tion growth, out­pa­tient care expan­sion, and long-term ten­ant sta­bil­i­ty, MOBs con­tin­ue attract­ing investor inter­est across the coun­try.

“Health­care is a neces­si­ty, not a dis­cre­tionary expense,” con­cludes DiNi­co­la. “That fun­da­men­tal char­ac­ter­is­tic has helped make Med­ical Office Build­ings one of the most resilient and durable sec­tors with­in com­mer­cial real estate.”

For DST investors seek­ing diver­si­fi­ca­tion, pas­sive income poten­tial, and expo­sure to health­care-dri­ven demand, Med­ical Office Build­ings may rep­re­sent a com­pelling addi­tion to a diver­si­fied real estate port­fo­lio.